Archive for August 2013

I listen to a lot of presentations on innovation. More accurately, I hear the word innovation sprinkled in presentations like grated Parmesan on spaghetti. Like the cheese, mentioning innovation is supposed to make something taste better by its inclusion. Too much though and it hides the original flavor of the dish – which I sometimes think is the intent. It’s rare when a presentation talks about innovation and actually addresses innovation. This tendency to use innovation as a buzzword makes me highly suspicious of any presentation that mentions it extensively. So, when I was invited to a webinar on innovation from IBM I was doubtful that it might really be about innovation. I admit to being pleasantly surprised.

The presentation from the IBM Institute for Business Value Strategy & Transformation (IBV) was entirely about innovation. While there was a lot of information derived from 2012 their survey of CEOs, I was most impressed by the framework they developed for thinking about innovation and business value. In a nutshell, they identified three distinct types of innovation that drive business value. They are:

Operational Innovation – creating efficiencies through new business processes.

Business Model Innovation – creating new ways to do business and new ecosystems to support it.

It’s a simple way to look at innovation but helps bring focus to a subject that typically seems like meaningless management malarkey. Of course, how a company innovates is still a matter of debate, as is how effective are innovation efforts. This framework for thinking about innovation, however, gives a target for those efforts. It’s unlikely that a company, even a big one, can do all three at once without becoming confused and disorganized. An understanding of how a company best innovates is also key to overall company strategy.

Take cloud applications. I’ve seen a number of companies that wrongly view cloud applications as a product innovation. In fact, cloud applications, or Software-as-a-Service, does not change anything fundamental about enterprise applications. Features of cloud applications directly mirror the features of their on-premises brethren and sometimes are direct analogs. In fact, cloud applications are a business model innovation. They change how software is delivered and paid for. The ecosystem is different, pricing strategies different, and even the enterprise buyer may be different. It makes sense to treat cloud application as a change in how business is conducted not like a new kind of product.

Mobile application strategy, on the other hand, should revolve around product innovation. The platform is new and what can be done with mobile devices is still evolving. The design philosophy of all applications is changing because of the mobile experience. Yet, mobile applications still, for the most part, follow the original software business model. A consumer pays for single user license or the app is a free an add-on for a conventional applciation. The vast majority of mobile applications are still downloaded and installed locally like on-premises applications.

Innovation is being hailed as the way to success in the current economy. So much is attention has been placed on product innovation. It was great to have IBM IBV point out the other ways companies can create business value.

Yesterday, Hewlett-Packard announced it’s third quarter 2013 results and investors and industry watchers were not amused. And no wonder: revenue was down, earnings were down, and Enterprise Group chief Dave Donatelli was “reassigned”. Revenue had predictably declined in Personal Systems , as well as Printing. Enterprise Group, and Enterprise Services. The only part of HP that didn’t report a decline was the Software group and that was a measly 1% gain and represented only 3% of total revenue. CEO Meg Whitman said that HP saw “continued weak enterprise spending” and blamed “inconsistent execution” for the continued softness in revenue.

The decline in revenue, especially the Enterprise Group (-9% overall), was not exactly startling. Hardware buy has continued to shift from internal IT to cloud vendors such as Amazon, Google, and Rackspace. In addition, HP continues to face traditional rivals such as IBM, Oracle and Microsoft along with and a host of smaller cloud infrastructure providers. HP has it’s own cloud offering, Converged Cloud, that competes with other cloud infrastructure vendors but also cannibalizes its own enterprise hardware systems.

More important than the hardware market changes is the shift in software buying to cloud software or Software-as-a-Service. For the IT professional or Line of Business manager in the process of buying a new application, hardware may not even be a consideration. When a company buys a CRM application from Salesforce.com or Human Capital Management from SAP Successfactors, it doesn’t worry about servers or storage. It doesn’t care about cloud infrastructure either. It doesn’t care about infrastructure at all. Hardware is just part of the package. From the buyer’s perspective, the application might as well be running by magic. With no end user – as opposed to IT – facing applications, HP will continue to struggle from this change in the software landscape.

With the number of hardware buyers diminishing and few major enterprise software applications, HP will continue to suffer. Their rivals, especially Microsoft, IBM, and Oracle, continue to invest in cloud infrastructure and cloud software applications. HP is not well positioned to compete with these multi-faceted IT companies given it’s limited software portfolio.

So far the financial turnaround has taken five years. The big question is when the big overhaul in the business will come. The answer may well be, “Not soon enough.”